A review of the all-island furniture industry

Published: 2003

Executive Summary

Objectives of report

The objectives of this report can be summarised as follows:

• To understand the current state of the furniture manufacturing sector on the island of Ireland and identify the main issues that are affecting its growth and development;
• To evaluate the competitiveness of the sector and understand its positioning in the domestic and export market context;
• To highlight the opportunities for development available to the sector on the island;
• To make recommendations in respect of the sector’s development, informed by feedback from the market; and
• To prepare the foundations for higher levels of cooperation across the industry within and between Northern Ireland and Ireland.

The findings of this report are aimed at the industry, policy makers and development agencies, to ensure that each of their current strategies are well aligned with the changing market and competitive environment by providing an accurate picture of market trends, dynamics and sources of supply.

This report identifies opportunities for actions to be taken which will enhance the potential for a sustainable furniture manufacturing industry in Ireland and Northern Ireland in the face of intense international competition. 

The furniture industry 2002: a snapshot

Table 1 presents a snapshot of the all-island furniture manufacturing industry in 2002, highlighting market value, industry output, international trade and industry dynamics. 

Source: Regional Trade Statistics, HM Customs and Excise, July 2003 
Northern Ireland Annual Business Enquiry, Department of Enterprise, Trade and Investment, 2001 
2001 Census of Industrial Production, Central Statistics Office, July 2003 
ONS Annual Business Inquiry and Business Monitor MQ10 Trade by Industry 

Key points

• Retail furniture sales were valued at €1,899 million (£1,194 million) on an all-island basis in 2002. The market has grown by over 42 per cent since 1999 when it was valued at €1,324 million (£832 million);
• All-island furniture output reached €898 million (£565 million) in 2002 at manufacturers’ prices, growing by 22 per cent since 1999;
• Furniture imports into Ireland have increased by 36 per cent since 1999;
• In Ireland, furniture exports have grown by 15 per cent in the same period since 1999. Information on exports from Northern Ireland is limited due to problems with the collection of inter-regional trade information within the UK. However, export data has been made available for 66 Invest Northern Ireland furniture client companies and collectively these companies have demonstrated a 57 per cent increase in export sales from 1999-2002; and
• Employment in the sector has increased by 10 per cent from approximately 9,500 people in 1999 to approximately 10,500 in 2002. 

Market drivers and consumers

Demand for furniture is influenced by a number of factors, including the economic climate (particularly, the construction sector), demographic changes, international trends, consumer lifestyles, and the media.

• Economic performance has slowed since 2001, but consumer confidence has remained high as a result of low interest rates and high levels of employment;
• Demographic changes, in line with the wider EU, include declining birth rates and growth in the middle age and older population bands. This affects types of housing and furniture required;
• Smaller families, later marriages and single person households, combined with working from home trends and more frequent eating out, are presenting particular challenges and opportunities for furniture manufacturers; and
• Consumer awareness of furniture design and interest in home decoration and improvement has been cultivated by a surfeit of national and local TV programmes and magazines covering DIY, design and home improvement.

Furniture manufacturers based on the island of Ireland need to gain a better understanding of potential customers’ life cycles in order to target their products accurately, to their needs.

Supply structure

Imports of domestic furniture into Ireland and Northern Ireland have continued to grow in recent years and now account for more than 70 per cent of domestic furniture sales in Ireland and 85 per cent in Northern Ireland. [3]

The expansion of UK multiples on the island (who tend to source products in large volumes internationally) and the decline of independent retailers are thought to be major contributors to the growth in imports’ share of the market.

Leading sources of imported furniture include Great Britain (via multiples but not necessarily originating in Great Britain), Italy, Germany, Malaysia, Spain and Eastern Europe.

The contract sector has lost less ground to imports; Ireland- and Northern Ireland-based manufacturers retain 40 per cent and 55 per cent respectively of their local markets.

Exports by manufacturers in Ireland have shown modest growth since 1999, increasing by 15 per cent to €123 million (£77 million) in 2002. This Data recorded for Northern Ireland shows that export sales increased by 57 per cent to £58.2 million (€92.76) between 1999 to 2002. [4]

Cross-border trade between Ireland and Northern Ireland is considered small in comparison to other sectors - in 2002, this stood at approximately €11 million (£6.9 million) from Ireland to Northern Ireland, and £6.1 million (€9.7 million) from Northern Ireland to Ireland.

Industry structure

The furniture industry on the island of Ireland is a significant contributor to the economy in terms of employment. In 2002, employment in the industry stood at:

• Northern Ireland: 3,813 jobs (4 per cent of total manufacturing employment); and
• Ireland: 6,615 jobs (2 per cent of total manufacturing employment).

The sector accounted for 1 per cent of GDP in Northern Ireland and 0.4 per cent in Ireland in 2002, and the value of manufacturing output in 2002 (at factory prices) was:

• Northern Ireland: £207 million (€329 million); and
• Ireland: €569 million (£358 million). 

Between 1999 and 2002, 939 new jobs were created in the sector: 
318 in Northern Ireland and 621 in Ireland.

The industry is geographically concentrated around the Border and Midlands regions: in particular in Monaghan, Armagh, Tyrone, Cavan, Meath and Fermanagh, making it an important engine of the economy in these regions.

There is a dominance of cabinet, upholstery, bedding and contract furniture manufacturing on the island. Northern Ireland is stronger in contract manufacturing, while Ireland has a larger representation of domestic furniture manufacturers, however the lines identified between the contract and domestic sub-sectors are becoming increasingly blurred.

Markets

The key markets for manufacturers on the island are within the island and Great Britain. There has been limited market development beyond Great Britain and the island of Ireland.

In 2002, retail sales of domestic furniture at Retail Selling Price (RSP) were £177 million (€281 million) in Northern Ireland and €802 million (£504 million) in Ireland. The markets have grown by 22 per cent and 40 per cent respectively since 1999. In the UK as a whole, retail sales of domestic furniture were at £4,892 million (€8.069 million) in 2002, an increase of 1.5 per cent since 1999.

In 2002, the contract markets at end user prices were worth £145 million (€231 million) in Northern Ireland and €585 million (£368 million) in Ireland, an increase of 49 per cent and 54 per cent respectively since 1999. The UK’s contract market was valued at £3,406 million (€5,419 million) in 2002, an increase of only 1.76 per cent since 1999.

Clearly the home markets have been more dynamic in the last 3 years, a factor that may explain heightened importer interest in Ireland.

Distribution channels for domestic furniture are similar between Ireland, Northern Ireland and Great Britain, with multiples now enjoying the dominant share of each market. Specialists are emerging, department stores are reviving, however, the independent sector continues to decline. Internet retailers and mail order have had limited impact on the island market.

Issues affecting the industry

Island-based manufacturers have a solid reputation for quality, modern production processes and a diversity of products in both contract and domestic sectors. Weaknesses tend to be softer issues and in most cases are surmountable.

These include weak design culture and product development, the absence of strategic thinking, poor cooperation within the sector, and (most fundamentally) a lack of shared vision/positioning within the industry. The key issues facing furniture suppliers are:

OVER DEPENDENCE ON INDEPENDENT RETAIL

Domestic furniture manufacturers on the island of Ireland rely heavily on the independent sector, which has been declining in recent years faced with increased competition from multiple retailers.

SLOW PACE OF NEW PRODUCT DEVELOPMENT

Shorter product life cycles in domestic furniture require ongoing product design and steady introduction of new products into the market.

Some manufacturers are at the fore of product development, but the majority tend to be market followers rather than leaders and lack the necessary innovation to differentiate their product.

INVESTMENT IN CONTRACT DESIGN

In the hospitality and leisure sector, refurbishments can now occur as often as every 5-8 years. This is particularly true of pubs and clubs requiring innovative designs from the contract sector. Investment in design is required to compete with the increasing influx of European imports on the contract market. Many manufacturers in Ireland and Northern Ireland do not consider design as a priority and are often unwilling to employ experienced designers and/or invest in design graduates with less experience.

INVESTMENT IN DOMESTIC DESIGN

Recent years have seen consumers moving house on a more regular basis (approximately 
every 2-3 years). Manufacturers don’t react quickly with innovative designs to anticipate this. They tend to use ideas from other markets to influence design trends.

MANAGEMENT SKILLS

Among the challenges to the industry is the development of strategic management skills within companies. Many companies are family based and can also be predominantly manufacturing/production orientated rather than market focused. There may sometimes be a reluctance to recruit the necessary management expertise across the business.

PERCEPTION AMONG BUYERS

Among buyers, there is a perception that manufacturers in Ireland and Northern Ireland produce good quality products but dated designs. Manufacturers often fail to adopt the latest trends - by comparison with counterparts in Great Britain and Europe. Service and lead times could also be improved. It is necessary for the industry to position itself better in export markets.

COMPETITIVENESS 
High operating costs resulting from rising wages, utilities costs, insurance and employer contributions are making many indigenous companies uncompetitive and reduce the capital companies have to invest in areas such as R&D, design, marketing and training.

EDUCATION AND TRAINING PLACES 
Educational courses specifically geared towards the furniture industry are vital for the development and maintenance of a vibrant furniture industry on the island. Prospective students often choose other courses or travel to Great Britain to take up furniture-related courses. There is limited co-ordination between education providers in creating opportunities for complementary courses.

If we consider international best practice models in the relative furniture industries of Italy, Denmark and Germany, there is one common ingredient; a common sense of purpose and identity despite intense firm rivalry and a diverse production base. This means informal agreement among companies to adopt a common market position in terms of price and quality. For example, Italian furniture has a high reputation for design quality and commands higher prices for that reason. Similarly, German manufacturers have a reputation for quality and technical performance and can also command a premium. Denmark has an image for wood craftsmanship and Danish design also commands a premium.

The dominant force in the European market tends to be Italy [5]. The Udine province specifically opted for a proactive policy of conquering the market instead of being dependant on it. This province produces 50 per cent of Europe’s chair production, 80 per cent of Italy’s chair production, produces 40 million seats annually and supports 1,200 firms with 14,000 employees. The success of this province is based on the concept of networking and cluster development of the 1,200 firms. Within the province 37 per cent of the firms produce finished goods, 27 per cent semi-finished and components, while 26 per cent of all firms produce for third parties [6]. The province understands the significance of strategic competitive factors such as design and collaboration creating a synergy between producers and designers.

The province’s transformation was caused by enhanced networking and network development, labour market change and innovation in design. The competitiveness of the province is characterised by flexible organisations and the capacity to improve technology and service capacity.

In comparison with the successful furniture producing areas such as Denmark, there is a lack of cohesion and cooperation for mutual competitive advantage in the industry on the island.

The industry on the island must develop a shared vision. This vision must match the existing reputation for quality on the island with a reputation in innovation, design and flexibility in production and service. 

Recommendations

Industry cohesion - Networks for competitive advantage

Market Positioning

Manufacturers in Ireland and Northern Ireland have built good reputations for the quality of their products. Effective marketing should be used to exploit this more thoroughly.

Design and Innovation

The slow pace of new product development, the lack of product innovation, and the lack of investment in design were all identified as serious challenges facing the industry.

Management Skills

Among the challenges to the industry is the development of strategic management skills within companies. Many companies are predominantly manufacturing/production orientated rather than market focused. Companies should: 

Competitiveness

Furniture manufacturers, like companies in other sectors, need to continually assess 
their own competitiveness, and seek ways of reducing costs.

Education and Training

The furniture industry needs to pay greater attention to education and training issues. 

Future market opportunities

The internationalisation of contemporary design will allow island-based manufacturers to participate in the wider European market where hitherto their reproduction style furniture was unsuitable. For example, the Eastern European market is becoming an opportunity as well as a threat for the furniture sector.

There are a number of other opportunities facing furniture producers, such as;

• continuing high demand for housing;
• favourable demographic trends;
• a growing UK market, for both domestic and contract furniture;
• an optimistic forecast for the tourism trade;
• leather products remaining popular; and
• the demand for cord, tweeds and felt products is re-emerging.

Given the tightening grip of Asian producers around the high volume end of the market, achievement of these opportunities will depend on sustaining competitive advantage through quality, innovation, design, market positioning and responsiveness. In the short term, realising these opportunities may require additional investment in capacity that is likely to squeeze margins. However, they may also be exploited through collaborative initiatives among suppliers for example, in offering whole room solutions.

If these adjustments can be made to the marketing strategy of the furniture industry, the potential exists to increase the value of the sector from its 2002 levels of €898 million (£565 million) to over €1,050 million (£670 million) by 2005, an increase of 18 per cent in 2-3 years [7].

Export volumes in particular have the potential to grow from current levels which are equivalent to 24 per cent of output, to 30 per cent within the same timeframe, provided companies take seriously the challenge to modernise their sales and marketing strategies and get closer to their customer.

Notes

[1]  Northern Ireland imports do not include the substantial level of goods coming either directly from or via Great Britain 

[2] Figure is based on a survey of 51 domestic and 15 contract furniture manufacturers from Invest Northern Ireland’s client base 

[3] In Northern Ireland, this does not include sales of accessories, furniture products that are sold direct to end consumers through the many small bespoke furniture manufacturers, or products such as fitted kitchens and bedrooms that are installed in homes through building contractors/specifiers or direct to end users through manufacturers’ own showrooms

[4] Export data for Northern Ireland is based on an analysis of 66 Invest Northern Ireland furniture client companies

[5]  FFINTO, Improving Supply Chain Management in the UK Furniture Industry, Pye Tait 2003

[6] Italian Industrial District - a Model to Export, OECD 2002 

[7] OCO Consulting, 2003